Commentary

Shale gas: A game-changer in slow motion

Commentary: Infrastructure, policy still in their infancies

SAN FRANCISCO (MarketWatch) — There’s no question the booming U.S. shale gas industry is opening doors. It will also close a few. That’s what makes it a disruptive moment in the global energy market.

The technological breakthroughs that have suddenly made shale gas commercially viable are forcing a major re-evaluation of the nation’s extensive shale formations. The rosiest projections show the United States, faced with a bulging surplus of cheap, clean-burning gas, emerging in record time as a major natural gas exporter.

It’s a heady vision, and one the domestic energy industry is eager to cultivate. Just think what this could add to the bottom lines of those companies that have already staked out vast production leases in such hot plays as the Marcellus shale basin in Pennsylvania and upstate New York.

But don’t expect an overnight industry-wide upheaval. Before they start booking assumed future earnings, they need to take a hard, cold look at the prospects.

As with any industrial enterprise, there are already plenty of legitimate environmental concerns that need to be addressed. And since drilling for shale gas is a relatively new undertaking pushing onto states unaccustomed to drilling, more regulations are certainly on the way.

Then there’s the pipelines that need to be built. Securing rights of way for anything takes years. Gas gathering and transmission lines will be no different.

The gas then needs a viable outlet. Since domestic production is already outpacing demand, that means finding overseas customers. Right now, the numbers makes sense. Europe would likely be an eager buyer of cheap U.S. liquefied natural gas, especially if it could partly offset the region’s heavy dependence on Russia for so much of its gas.

Long-standing opposition to LNG terminals on safety concerns is practically a tradition in this country, and unlikely to change any time soon. Expect hearings and litigation to last years.

But before any LNG terminals are even built, the companies financing them will first demand signed delivery contracts. No one builds a billion-dollar terminal without assurances that producers have locked in long-term customers for their gas. This, too, takes years.

Meanwhile, who’s going to absorb all this new-found shale gas? While waiting for the export market to open up, it will back up here at home, creating a price-killing glut that will force producers to shut in production wells and kill off further drilling.

The history of the U.S. natural gas market is littered with gluts from conventional gas fields. There’s little reason to believe shale gas would be any different.

Gas industry proponents argue that a surplus of cheap natural gas offers the perfect opportunity to convert America’s auto fleet from gasoline to compressed natural gas, a move also strongly support by those concerned that the country is dangerously dependent on Middle East oil.

While there are plenty of city buses and local delivery trucks roaming the roads on CNG, they can never stray far from their refueling depots. This lack of fuel outlets makes natural gas-powered personal vehicles a rarity.

That could change. But for the time being, the infrastructure needed to support CNG cars remains in its infancy. That also explains to poor selection of available CNG-powered cars.

And then there’s Washington D.C., where reaching a coherent national energy policy is practically an impossible, mythological quest.

Gas lobbyists must square off against the formidable forces backing ethanol, gasoline or electricity. There are also legitimate concerns the government might decide that none of this gas should ever leave the country, but be kept at home instead to secure the energy needs of future generations.

While all these considerations make betting on shale gas pretty murky, a couple of things about the industry are practically guaranteed: it desperately needs to develop new infrastructure, and the scope of that infrastructure will be shaped by forces beyond U.S. borders.

While it’s tempting to see the United States on the brink of becoming a major gas exporter, it’s worth bearing in mind that there are vast shale gas deposits elsewhere in the world. And the technology needed to put it production travels fast.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.